science applications international corporation
Post on 15-Dec-2016
217 Views
Preview:
TRANSCRIPT
MEMORANDUM OF DETERMINATIONS
OVERSEAS PRIVATE INVESTMENT CORPORATION
Expropriation Claim of Science Applications International Corporation
OPIC Contract of Insurance No. E833
Dated as of July 12, 2004
2
I. INTRODUCTION
On September 4, 2003, Science Applications International Corporation (the
“Insured” or “SAIC”) submitted a claim to OPIC for compensation under the
expropriation coverage of OPIC Contract of Insurance No. E833 (the “OPIC Contract”)
for US$9,714,875 (the “Claim”). The Insured’s active coverage under the OPIC Contract
was for up to US$15,000,000. The OPIC Contract covered the Insured’s investment in
Informatica, Negocios y Tecnologia, S.A. (“INTESA”), a Venezuelan company that was
owned by the Insured and the Venezuelan state-owned oil company, Petroleos de
Venezuela S.A. (“PDVSA”) and provided technology and information technology
services.
OPIC has determined that the Claim is valid based on its review of materials and
statements provided by the Insured and the Government of Venezuela (the “GOV”). This
memorandum of determinations solely addresses the issue of whether the Insured’s
investment in INTESA was expropriated by the GOV. The amount of compensation for
the Claim will be determined separately.
II. FACTUAL SUMMARY
In the mid-1990s PDVSA embarked on a plan to cut costs and modernize its
operations to compete in the international market more effectively. A significant change
made pursuant to this reorganization was the spin-off of PDVSA’s information
technology unit into INTESA, a joint venture 40% owned by PDV-IFT S.A., a wholly-
owned subsidiary of PDVSA, and 60% owned by SAIC (Bermuda), LTD. a wholly-
owned subsidiary of SAIC. The Insured and PDVSA entered into the INTESA joint
venture agreement on December 30, 1996 (the “JVA”). In conjunction with the JVA,
PDVSA awarded INTESA a five-year services contract for providing a broad range of
information technology services (the “Services Agreement”) and SAIC agreed to
contribute a license for certain rights to SAIC technology and guarantee certain services
3
performed by INTESA. The stated purpose of INTESA was (i) to perform all of the
information-technology services required by PDVSA and its affiliates pursuant to the
Services Agreement including, without limitation, the management, operation, support,
maintenance, and enhancement of the information systems and network operations of,
and systems development for PDVSA and its affiliates and (ii) in the future, to provide
services to other businesses and agencies in Venezuela and elsewhere in Latin America.1
INTESA incorporated PDVSA’s internal information staff and began operating
on January 1, 1997. Some of INTESA’s projects in the mining, oil, banking, and
government sectors included developing and maintaining internet-based petrol
purchasing portals, developing administrative systems for various oil projects, and
providing Y2K solutions. It also outsourced major information projects to third parties on
behalf of such companies as BP, Shell, Ecopetrol, Petrozuata, Sincor, Sidor, Sivensa,
Novartis, Banco Mercantil, Corpbanca, and Banco de Venezuela. The PDVSA
arrangements accounted for 95% of INTESA’s revenues, and 80% of INTESA’s
employees worked on premises within PDVSA facilities, with INTESA supplying IT
equipment for its own and for PDVSA’s employees.
The election of Hugo Chavez as President of Venezuela in December 1998 had
almost immediate implications for INTESA. The night of his election victory, President
Chavez stated that the budget and operations of PDVSA should be subordinated to
national, rather than corporate, goals. Chavez promised to reevaluate the policies of the
oil company. President Chavez’ nationalistic rhetoric directly aimed at foreign investors
in Venezuela, and with respect to PDVSA, he pledged to “subordinate it to the
Venezuelan state.”2 In 1999, the status of INTESA was controversial. PDVSA’s
president even broached the idea of dissolving INTESA and reintegrating its information
technology responsibilities. In August and October 1999, President Chávez removed
experienced senior PDVSA managers and directors and replaced them with political 1 See JVA Section 2.2 2 See Business News America, Chávez: Pdvsa is Insubordinate (Dec. 9, 1998); Marshall DeLuca, Industry Cautious over Chávez Election, PenWell Publishing Company Offshore (January 1999); Associated Press, President-elect vows to shake up oil monopoly (Dec. 28, 1998); See Latin Am. Energy Alert, PDVSA Brought to Heel as Work on New Constitution Starts (Aug. 5, 1999).
4
allies and former army generals.3 Consistent with this trend, PDVSA ordered a review of
INTESA’s services in 2000, and renegotiations on the Service Agreement began soon
thereafter. By July 2001, disagreement over whether INTESA would receive 100% of
PDVSA’s information technology outsourcing contracts in 2002 was public knowledge
and, at the expiration of the Services Agreement in December 2001, PDVSA refused to
renew the Services Agreement immediately. PDVSA chose instead to continue
negotiations under a six-month provisional agreement on the same terms as the Services
Agreement.
On May 2, 2002, SAIC was notified by PDVSA that it would like to begin formal
discussions regarding the termination of the Services Agreement. Pursuant to its terms,
the Services Agreement expired at the end of June, although INTESA continued to
perform services to PDVSA during the negotiation period.4 The Services Agreement was
essential to INTESA’s continuity, and its termination effectively ended the viability of
the joint venture. On June 28, 2002, PDVSA sent SAIC a letter demanding termination
of the Services Agreement as of June 30, 2002, conclusion of the share transfer process
before December 30, 2002, and continued provision of IT services on an interim basis.5
OPIC understands that negotiations between the Insured and PDVSA regarding INTESA
took place during the Summer and Fall of 2002. On October 18, 2002, PDVSA sent the
Insured a letter containing an ultimatum under which, if the Insured failed to accept a
“final” price offer within seven days, PDVSA threatened that:
3 See 14 Octane Week, New Regime Takes Over Venezuela’s Oil Industry; Pledges Cuts, Feb. 8, 1999; Patrick Crow, PDVSA Worries, Oil & Gas J. June 7, 1999, at 30; Latin Am. Energy Alert, PDVSA Brought to Heel as Work on New Constitution Starts (Aug. 5, 1999) (noting the appointment of two military officers, Gen. Alfredo Caneiro and Gen. Oswaldo Contreras, along with a close friend, Hector Ciavaldini); Adam Easton & Starr Spencer, Chávez Names Army Officer to Run PDVSA, 78 Platt’s Oilgram News 5 (Oct. 17, 2000) (noting appointment of General Guaicaipuro Lameda as President of PDVSA). 4 Under the Services Agreement the parties had agreed that during the period of disentanglement that (i) they would fully cooperate to facilitate a smooth transition of the terminated services from INTESA to PDVSA; (ii) INTESA would continue to provide services to PDVSA for up to six months; (iii) INTESA would deliver to PDVSA at its request all data of PDVSA and all documentation and data related to or used in the provision of the services to PDVSA; and (iv) INTESA would be obligated to transfer to PDVSA certain assets and properties in return for appropriate consideration. Adherence to these provisions of the Services Agreement, including the transfer of certain assets of properties, were required regardless of whether or not PDVSA planned to purchase SAIC’s interest in the INTESA. 5 See Letter from Ivan Crespo, PDVSA, to Pablo Orsolani, INTESA (June 28, 2002).
5
“We will consider that the share valuing process specified in article 12.2 of (the “
JVA”) has exhausted itself and that neither party is interested in purchasing or
causing the other party to purchase the shares SAIC holds in INTESA; and
PDVSA has been given by law the faculty, right and responsibility to pursue,
organize and plan its operations (declared of ‘Utilidad Publica’ and thus of
concern to the ‘National Interest’) as per such policies and strategies as it or its
Shareholder (i.e., the Venezuelan State) adopt in the protection or furtherance of
that National Interest.”6
On November 20, 2002, the Insured informed OPIC of PDVSA’s threat of
expropriation through an invocation of the “national interest.”7 Also in November 2002,
Venezuelan labor unions began organizing for massive strikes to protest President
Chavez’s rule. On November 29, 2002, PDVSA and INTESA agreed on a “Contingency
Plan” to maintain critical services during the National Strike. On December 2, 2002, a
general nationwide strike was declared in Venezuela to protest Hugo Chavez’s
government. PDVSA employees declared their support of the strike on December 3,
2002. The extent of participation in the strike by INTESA employees remains unclear,
although the strike severely hindered the ability of INTESA employees to fulfill their
jobs. The strike negatively impacted Venezuela’s economy, in particular the oil and gas
industry. On December 8, 2002, President Chavez issued an emergency decree to protect
the national oil industry’s infrastructure and to maintain control and regular operations
through the use of the National Armed Forces. On the same day, the Ministry of Energy
and Mines issued a resolution enabling the Ministry to adopt adequate and necessary
measures to guarantee the supply, transportation, distribution, commercialization, and
retail sale of hydrocarbons and by-products. On December 11, 2002, Ali Rodriguez,
President of PDVSA, ordered the deactivation of the remote access service at INTESA,
which enabled INTESA employees to service client needs remotely. Mr. Rodriguez 6 Letter to Dr. J. Robert Beyster, SAIC from Oswaldo M. Contreras, PDVSA regarding Threat to Abandon Valuation Process (Oct. 18, 2002). 7 See Letter to Juan Carlos Rivera-Montes, Investment and Insurance Officer, Overseas Private Investment Corporation from Susan M. Frank, Deputy General Counsel, SAIC regarding Threat of Expropriation by Venezuelan Government-Owned Entity (Nov. 20, 2002).
6
ordered “we urgently require: (1) The deactivation of all RAS access codes to
PDVSA….; (2) These codes are to be activated only after an authorization has been
issued by me; (3) That the Application and Net Maintenance and Monitoring Services be
guaranteed on site once the RAS access codes have been deactivated.”8
As the strike continued in December 2002, the National Armed Forces took over
various PDVSA sites, including the premises leased from PDVSA by INTESA.
Eventually, the National Armed Forces took over the majority of PDVSA’s facilities,
from production to distribution. Approximately 18,000 of PDVSA’s work force of
33,000 either left the company or were dismissed for participating in the strike. President
Chavez’s strategy during the strike in combating political opposition to his administration
was to minimize the effects of the opposition by using the military to retake oil
installations in hopes of reactivating the industry. To implement that strategy during the
strike, the GOV declared force majeure under its oil contracts on December 5, 2002 and
dismissed most of the PDVSA workforce. The Venezuelan military seized operations of
INTESA and blocked employees’ access. At such time, talks between the Insured and
PDVSA collapsed. The Venezuelan military effectively shut down PDVSA’s computer
systems, and PDVSA operated manually until its computer systems were properly
restored. President Chavez stated publicly in January of 2003, “INTESA executives
didn’t want to cooperate…We’ll have to rescind the [INTESA] contract…We’re
nationalizing the brains of our oil industry.” Other than their general declaration of
support, however, INTESA denies that its employees participated in the strike.
On January 2, 2003, as massive demonstrations and disruptions continued, Pablo
Orsolani, President of INTESA, met with PDVSA to discuss the access prohibitions
imposed on INTESA and to request payment of November 2002 invoices submitted by
INTESA.9 Also on that day, an INTESA Board Member informed PDVSA that INTESA
would terminate services on January 22, 2003, in accordance with Section 2.04 of the
Services Agreement, should PDVSA not pay for overdue invoices (in the approximate
8 Letter to Pablo Orsalini, President of INTESA, from Ali Rodriguez, President of PDVSA, December 11, 2002. 9 INTESA Summary of Events, p. 16.
7
amount of US$12,000,000) for services provided in November 2002.10 PDVSA had
accepted and validated these invoices prior to the start of the strike. On January 8, 2003,
PDVSA required that INTESA surrender further access and administration codes, this
time related to the operating system and data base levels regarding the “SAP” platform.11
On January 12, 2003, INTESA employees (over 1,000) signed a resolution to cease
providing PDVSA’s information technology services for many reasons, including the
prohibitions on their access to PDVSA work sites, the disabling of INTESA’s remote
access, the intimidation of INTESA employees by the Venezuelan military, and alleged
illegal working conditions. On January 13, 2003, INTESA’s Board of Directors invoked
force majeure under the Services Agreement as a result of their employees’ inability to
continue providing services to PDVSA due to the reasons cited the day before in the
INTESA employee resolution.12
On January 19, 2003, President Chavez announced in a television address that a
group of approximately 100 INTESA employees under the leadership of INTESA’s
Socorro Fernandez joined military personnel and engaged in a “high intelligence civil and
military operation” to transfer INTESA’s operation back under the umbrella of PDVSA.
By February 2003, it was clear that President Chavez’s presidency had survived the
strike. It was soon thereafter PDVSA announced that it would take advantage of the
walkout by employees to restructure itself, and President Chavez promised that private
firms that supported the crippling two-month opposition strike would not be allowed to
participate in the oil industry in the future. President Chavez pledged on national
television: “We will never again hand over the brain center of the company [PDVSA] to
transnational power.” INTESA was slated to be dissolved by the end of March, and
negotiations between the Insured and PDVSA resumed. The Insured disclosed in its
annual report that due to “an embargo and general work strike…and other reasons…”
INTESA had suspended operations and would be classified as a discontinued operation.
By June 2003, PDVSA had either internalized or outsourced all the responsibilities
10 Letter to Ali Rodriguez, PDVSA, from Joe Walkush, INTESA. 11 Letter to Pablo Orsolani, INTESA, from Ali Rodriguez, PDVSA. 12 Minutes of the Special Meeting of the Board of Directors of INTESA.
8
previously performed under the Services Agreement and had negotiated the debts of
INTESA with its suppliers.
III. DETERMINATIONS UNDER THE OPIC CONTRACT
As a condition to receiving compensation for a loss covered by Section 4.01 of
the OPIC Contract, the Insured must show that expropriatory acts attributable to GOV
have directly deprived the Insured of fundamental rights in INTESA and have continued
for at least six months. The Insured must also show that certain exclusions and
limitations set forth in the OPIC Contract do not apply. OPIC has determined that the
Insured has made the required demonstration and consequently is entitled to
compensation under the OPIC Contract.
A. The actions taken by the government of Venezuela in relation to the
Insured’s investment in INTESA constitute total expropriation within the
meaning of the OPIC Contract.
The Insured’s claim satisfies each of the four requirements for a finding of “Total
Expropriation” under Article 4 of the OPIC Contract.
1. The expropriatory acts are attributable to a foreign governing
authority.
The first step in assessing the elements of an expropriation claim involves
determining whether the alleged expropriatory acts are attributable to a foreign governing
authority. Specifically, Article 4.01(a) of the OPIC Contract requires that the
expropriatory acts be attributable to “foreign governing authority which is in de facto
control of the part of the country in which the project is located.” The Insured has
provided evidence of several expropriatory acts that the GOV directly initiated in its
sovereign capacity, and are therefore directly attributable to a foreign government
authority, as required by Section 4.01(a) of the Insured’s OPIC Contract. The acts listed
include:
9
• The December 11, 2002 order from PDVSA, implementing a presidential
emergency decree, that INTESA terminate its remote access capabilities;
• Numerous public statements by President Hugo Chavez specifically
acknowledging the nationalization of INTESA by the GOV;13
• The seizure by Venezuelan National Guard troops and PDVSA security officers
of INTESA assets, their harassment and intimidation of INTESA employees, and
the denial of workplace access to INTESA employees, beginning in mid-
December 2002;
The Insured has also provided evidence supporting the conclusion that the
Venezuelan tax authority’s assessment from December 12 and 20, 2003 of
US$40,000,000 in tax claims should be considered expropriatory. The nature of the tax
allegations was questionable, and the GOV seized and denied access to INTESA’s leased
premises in the Pequiven Tower containing the information that INTESA needed to
respond to the tax assessment. The timing and scope of the December 2003 tax
assessment are indicative of an overall strategy on the part of the Chavez administration
to frustrate the Insured’s ability to properly carry out its duties with respect to INTESA,
further President Chavez’ stated goal of nationalizing INTESA, and create a pretext for
denial of compensation owed to the Insured.
Based on the record supporting the Claim, OPIC agrees with the Insured’s
attribution of the expropriatory acts to the GOV. The GOV’s responsibility for the acts
listed above is described below.
a. The December 11, 2002 termination of INTESA’s remote access
capabilities is attributable to the GOV.
13 Translation of the transcripts of President Chavez’s statements to be made available/attached as an exhibit.
10
As evidence of the GOV’s responsibility for the termination of INTESA’s remote
access capabilities, the Insured has provided extensive correspondence related to the
events of early December 2002, as well as statements by President Hugo Chavez
describing his participation in the decision to terminate INTESA’s remote access
capabilities. OPIC agrees that the termination of remote access is attributable to the
GOV under Article 4.01(a) of the OPIC Contract.
In three separate national addresses, President Chavez took direct responsibility
for the termination of remote access, stating variously that “we are already
disconnecting” INTESA’s remote access; that “we have blocked [them] so they have no
access from the outside, into the systems;” and that “people of INTESA… started to shut
down the networks and the systems by remote control. We had to isolate [them].” On a
more general level, President Chavez stated that “[d]uring those days in December, at the
beginning of the terrorist sabotage, I devoted many days to work with the problem of
PDVSA, directly with [PDVSA President] Ali Rodriguez and the Minister [of Mines and
Energy] Rafael Ramirez.” In sum, President Chavez’ statements provide direct evidence
of his role in making key PDVSA decisions and ordering the termination of INTESA’s
remote access capabilities.
OPIC’s conclusion that the decision to terminate INTESA’s remote access is
attributable to the GOV under Article 4.01 of the OPIC Contract is based on public
statements made by President Chavez on national television, which are consistent with
actions taken, and statements made, by other high officials of the GOV and its
instrumentalities.
b. The GOV was involved in harassment of INTESA employees, the
exclusion of INTESA employees from their workplaces, and the
seizures of INTESA assets and premises.
The Insured has provided extensive documentary evidence showing GOV
involvement in seizures of INTESA assets and premises, as well as in the harassment of
11
INTESA employees by the Venezuelan military and barring them from their workplaces.
These evidentiary sources include statements made contemporaneously by INTESA
employees describing the role of National Guard representatives in detaining and
intimidating INTESA employees, barring INTESA employees from their workplaces, and
seizing INTESA vehicles and premises. The INTESA employee resolution signed on
January 12, 2003 (referenced in Section II above), directly supports the argument that
INTESA workers were unable to access their workplaces, and GOV forces harassed and
intimidated them. The contemporaneous nature of these statements supports their
reliability, as does the fact that their authors made such statements in spite of the risk of
retaliation from GOV authorities.
Daily logs of work drafted by INTESA employees pursuant to the Contingency
Plan and sent to PDVSA representatives also support the Insured’s assertion that the
GOV prevented INTESA employees from carrying out their duties. These logs provide
detailed descriptions of the work conditions at all INTESA premises. These daily logs
reflect the termination of remote access capabilities, blacklisting of INTESA employees,
and the seizure of INTESA premises by National Guard troops.
Judicial inspections of PDVSA facilities at which INTESA had offices and assets
provide particularly strong evidence. These judicial inspections, which judicial officers
wrote, describe identical patterns of conduct by National Guard troops or PDVSA
security personnel. National Guard troops or PDVSA security personnel refused
INTESA representatives and judicial representatives access to the INTESA premises,
stating specifically that they were under orders to deny access to INTESA employees.
These evidentiary sources show that the GOV was actively involved in planning and
implementing actions taken against INTESA and its employees.
c. President Chavez made public statements regarding the
nationalization of INTESA.
12
President Chavez’s nationalistic rhetoric regarding INTESA was aimed directly at
foreign investors in Venezuela. The Insured has provided OPIC with excerpts from seven
separate speeches by President Chavez in which he referred variously to the “take …
over,” “nationalization,” “Venezolaniz[ation],” and “recuperat[ion]” of INTESA assets
and PDVSA’s “brain.” Additionally, the Insured provided OPIC with a video
compilation of excerpts from President Chavez’ speeches. These public statements by
the Venezuelan head of state provide incontrovertible evidence that the actions carried
out by agents of the GOV against INTESA’s employees were deliberate, systematic, and
at the direction of President Chavez.
2. The GOV’s nationalization of INTESA is a violation of international
law.
Section 4.01(b) (as amended by § 10.02) requires that the acts of expropriation
violate international law without regard to the availability of local remedies.14 According
to the Restatement (Third) of Foreign Relations Law of the United States (the
“Restatement of the Foreign Relations Law”), a state is responsible under international
law for injury resulting from:
(1) a taking by the state of the property of a national of another state that
(b) is discriminatory, or
(c) is not accompanied by provision for just compensation;
(2) other arbitrary or discriminatory acts or omissions by the state that impair
property or other economic interests of a national of another state.
14 The GOV has complained that OPIC reached this determination without requiring SAIC to exhaust available remedies in Venezuela. See letter dated May 7, 2004 from Thomas B. Wilner, Shearman & Sterling LLP, to Mark A. Garfinkel, Vice President and General Counsel of OPIC. OPIC’s handling of the SAIC claim in this respect is consistent with the standard contracts that OPIC has used for the past 30 years. See reply of Mark A. Garfinkel, dated May 24, 2004. The U.S. government expropriation coverage issued by OPIC and predecessor agencies permits the insured to make its case to the insurer as to whether the investor has suffered an expropriation under international law without exhausting any other remedies that may be available against the foreign government, including local remedies. Upon expiration of a contractually provided waiting period, the insured has a claim for compensation from OPIC. See Proposed Insurance Contracts, 50 Fed. Reg. 20945, 20947 (1985).
13
OPIC finds that the GOV is responsible for injury sustained by the Insured. As
discussed below, the standards contained in Sections 712(1) and (3) of the Restatement of
the Law of Foreign Relations provide independent bases for finding that the Venezuelan
Government’s expropriation of the Insured’s investment in INTESA violated
international law.
a. The GOV actions constituted an uncompensated taking of the
Insured’s property.
Under Section 712(1) of the Restatement of the Law of Foreign Relations, a
governmental taking of the property of a national of another State is deemed to violate
international law if the taking is uncompensated or if it is discriminatory. In this case, not
only was the GOV’s taking of the Insured’s property uncompensated, but there is also
evidence that the taking was discriminatory. The issue of discrimination is discussed
below at Section III.A.2.b.i.
The Draft Convention on the International Responsibility of States for Injuries to
Aliens (1961) defines a taking of property as “unreasonable interference with the use,
enjoyment, or disposal of property as to justify an inference that the owner will not be
able to use, enjoy, or dispose of the property within a reasonable time after the inception
of such interference.” This definition would encompass not only direct takings of
tangible property, such as facilities and assets, but also unreasonable interference with
various forms of property, including contractual rights or other benefits of an investment.
Based on the evidence it has reviewed, OPIC concludes that President Hugo
Chavez, the National Guard, the PDVSA Presidency, and the Venezuelan tax authorities
interfered unreasonably with the Insured’s use, enjoyment, or disposal of its investment
in INTESA. The termination of INTESA’s remote access capabilities was the
governmental action that most clearly meets the definition of an “unreasonable
interference . . . as to justify an inference that the owner will not be able to use, enjoy or
dispose of the property within a reasonable time after the inception of the interference.”
14
By denying INTESA its remote access capabilities, the GOV denied INTESA the ability
to perform the fundamental information-technology services required by PDVSA, which
was INTESA’s stated purpose under the JVA, and destroyed the value of INTESA’s
shares prior to the implementation of the JVA transfer and disentanglement provisions.
The shutting down of remote access was of particular consequence (and debilitating to
INTESA) during the December 2002 strike as during that time the break down of
transportation infrastructure in Venezuela and Government intervention made it nearly
impossible for any INTESA employees to reach their offices at PDVSA. Subsequent acts
served to confirm the GOV’s deprivation of the Insured’s investment in INTESA. These
subsequent acts included the denial of hundreds of INTESA employees’ access to their
workplaces, the intimidation and harassment of INTESA employees, the seizure of
INTESA assets and premises, and the assessment of dubious tax claims worth U.S.
US$40,000,000.
In spite of its taking of the Insured’s investment in INTESA, the GOV has not
provided the Insured with just compensation, nor has it proposed in good faith a
reasonable mechanism for compensating the Insured.15
b. The GOV actions constituted arbitrary or discriminatory acts that
impaired the Insured’s investment in INTESA.
Under Section 712(3) of the Restatement of the Law of Foreign Relations, a state
is liable for injury to the national of another state if the state engages in “arbitrary or
discriminatory acts or omissions … that impair property or other economic interests of a
national of another state.”
15 “Just compensation” is an amount equal to the value of the property paid at the time of taking, or within a reasonable time thereafter with interest from the date of taking. See Restatement (Third) of the Foreign Relations Law of the United States (“Restatement”) § 712 (2002).
15
i. The GOV’s expropriation of INTESA was discriminatory.
Paragraph (f) of the Restatement of Foreign Relations Law clarifies that “[a]
program of taking that singles out aliens generally, or aliens of a particular nationality, or
particular aliens, would violate international law.”
The GOV’s actions satisfy the standards of Section 712(3) of the Restatement of
the Law of Foreign Relations. President Chavez’ explanations of the GOV’s
expropriation made clear the discriminatory nature of the expropriation of INTESA by
emphasizing the Insured’s United States nationality and by alleging that the creation of
INTESA represented a “transfer … [of] the control of strategic areas to enemies of the
homeland,” and a “grant … to the CIA [of] all of the information technology operations
of PDVSA.” President Chavez also explained the expropriation of INTESA in light of an
alleged “conspiracy against Venezuela, that comes from Washington, that is financed by
Washington, that is promoted by Washington.” Statements by the Venezuelan Minister
of Mines and Energy justifying the expropriation of INTESA based on alleged espionage
also confirm the discriminatory nature of the GOV’s actions.
ii. The GOV’s expropriation of INTESA was arbitrary.
The GOV’s control of PDVSA actions also resulted in arbitrary treatment of
INTESA throughout December 2002 and January 2003. Even after PDVSA specifically
required INTESA to provide remote access servicing of PDVSA’s IT functions during
the national strike, the President of PDVSA ordered INTESA to terminate the very
remote access codes that were necessary to continue operations. Furthermore, even after
the President of PDVSA demanded that INTESA provide service at PDVSA’s various
locations, PDVSA security personnel and National Guard troops then acted to frustrate
INTESA’s ability to comply with that demand by systematically barring INTESA
employees from their workplaces at those locations.
As required under Restatement § 712(3), the Insured’s investment in INTESA
was “impaired” by the GOV’s discriminatory acts, as explained in Sections III.A.2.b.
16
iii. The national strike does not justify the GOV’s actions.
President Chavez and other high officials of the GOV have sought to justify their
expropriation of INTESA in light of the national strike that was occurring during late
2002 and early 2003. These officials have also made serious allegations of sabotage and
espionage by INTESA employees.
Turning to the GOV’s allegations of sabotage, OPIC concludes there is no
evidence to support these allegations of sabotage. The record in this case is voluminous,
comprising hundreds of pages of letters and e-mail exchanges between and among
INTESA and PDVSA personnel, as well as technical support logs and daily reports made
in December 2002 and January 2003 by INTESA personnel. These materials also reflect
good relations between INTESA employees and PDVSA’s own IT managers, as
evidenced -- for example -- in the statement of PDVSA manager Marco Mogrovejo that,
“I would like to emphasize that we have always had the support of INTESA’s technical
personnel.” There is also evidence that INTESA’s President provided PDVSA’s
President with technical data specifically refuting the allegations of sabotage, and
requested -- without success -- explanations for the actions ordered by the PDVSA
Presidency.
OPIC also finds that Venezuela’s own actions in December 2002 do not support
its allegations of sabotage by INTESA. PDVSA insisted repeatedly that INTESA
provide full services despite PDVSA’s non-payment of invoices and PDVSA’s
interference with INTESA’s operations, including its denial of INTESA’s remote access
capabilities. OPIC considers that PDVSA’s repeated demands that INTESA continue to
maintain PDVSA’s IT services -- demands that INTESA appears to have endeavored to
satisfy -- are at odds with the GOV’s claims of sabotage.
17
The extensive record in this case contains no information that might serve to
substantiate Venezuela’s claims that INTESA sabotaged PDVSA’s operations or served
as a vehicle for espionage by the CIA or any other U.S. intelligence agency.
3. The GOV’s actions directly deprived the insured of fundamental
rights in the insured investment.
Section 4.01(c) of the OPIC Contract requires that the act of expropriation
“directly deprive the Insured of fundamental rights in the insured investment.”
According to the OPIC Contract, rights are “fundamental” if without them the Insured is
substantially deprived of the benefits of the investment.
The Iran-US Claims Tribunal has commented on the meaning of a “deprivation of
fundamental rights in an investment,” stating that:
A deprivation or taking of property may occur under international law through
interference by a state in the use of that property or with the enjoyment of its
benefits, even where legal title to the property is not affected. . . . [A] conclusion
that the property has been taken by the government, thus requiring compensation
under international law… is warranted whenever events demonstrate that the
owner was deprived of fundamental rights of ownership and it appears that this
deprivation is not merely ephemeral. The intent of the government is less
important than the effects of the measures on the owner, and the form of the
measure of control or interference is less important than the reality of their
impact.16
According to the JVA, the purpose of INTESA is: (1) to perform IT services
required by PDVSA pursuant to the Services Agreement, and (2) to provide services to
other businesses and agencies in Venezuela and Latin America in the future. The Insured
16 See Tippetts, Abbett, McCarthy, Stratton v. TAMS-AFFA Consulting Engineers of Iran, AWD 141-7-2 (June 29, 1984), reprinted in 6 Iran-U.S. Cl. Trib. Rep. 219.
18
had a fundamental interest in effectuating INTESA’s purpose. The Insured also has a
fundamental right to earnings generated by INTESA. Moreover, under the JVA share
transfer provisions, the Insured had a fundamental right to fair compensation under
Section 12.2 of the JVA. The GOV’s actions deprived the Insured of its fundamental
interest in effectuating the purpose of INTESA, its right to earnings generated by
INTESA, and its right -- in light of PDVSA’s decision to terminate INTESA -- to
compensation under the JVA share transfer provisions. Specifically, by terminating
INTESA’s remote access capabilities and thereby depriving INTESA of its ability to
provide IT services to PDVSA, the GOV denied the Insured its fundamental interest in
effectuating INTESA’s purpose and fundamentally undermined INTESA’s value and the
value of the Insured’s shares in INTESA.
The GOV’s actions taken subsequent to the termination of remote access
capabilities accelerated the Insured’s loss of its contractual rights under the JVA to
effectuate the JVA’s purpose and receive payment for the full value of its shares. By
harassing INTESA employees, by blacklisting and barring INTESA employees from their
workplaces, by changing locks and by seizing INTESA assets and premises, the GOV
destroyed the value of INTESA and the Insured’s interest therein, in addition to the
Insured’s right to be compensated for its INTESA shares. The GOV further undermined
these same interests when it levied almost U.S. US$40,000,000 in questionable tax claims
against INTESA and then seized the very records INTESA needed to defend itself against
these claims, thereby imposing on INTESA contingent liabilities that could result in a
complete forfeiture of its investment.
The GOV’s actions not only destroyed INTESA’s ability to function as an
ongoing concern but also prevented the Insured from exercising its rights under the JVA.
The GOV’s actions therefore meet the requirements of Section 4.01(c) of the OPIC
Contract.
19
4. The GOV’s actions have not been remedied and the expropriatory
effect has lasted over six months.
Section 4.01(d) of the OPIC Contract requires that “the violations of law are not
remedied (§ 9.01.9) and the expropriatory effect continues for six months.” In order to
resolve whether the GOV’s actions satisfy this standard, it is necessary to determine the
date on which the expropriatory effect commenced.
The date on which the expropriatory effect began is December 11, 2002, the date
on which President Rodriguez ordered the termination of INTESA’s remote access
functions. Without remote access servicing capabilities, capabilities which PDVSA
managers described as “necessary to continue operations” and a “fundamental element to
guarantee the minimum level of service,” INTESA was no longer able to function as a
viable, ongoing IT support company. In view of the refusal of the PDVSA Presidency to
permit reactivation of remote access codes, there was no reasonable prospect of a
restoration of INTESA’s operational capacity after that date. Furthermore, Venezuelan
President Chavez has publicly announced that the termination of remote access
capabilities was the seminal event in the “nationalization” and “venezolanization” of
INTESA.
To date, the GOV’s expropriatory acts against the Insured have not been
remedied. The GOV and PDVSA have refused to pay the Insured for its shares in
INTESA and to cooperate with the Insured’s attempts to mitigate damages by, for
example, putting INTESA into bankruptcy as required by Venezuelan law. The GOV’s
actions have destroyed the value of the Insured’s interest in INTESA.
B. No exclusions or limitations apply to the Insured’s claim.
The OPIC Contract exclusions do not apply to the Insured’s claim. Section
4.03(a) provides that compensation is not payable in instances of “provocation” by the
investor. Section 4.03(b) as amended by Section 10.03, provides that compensation is
20
not payable in instances in which the expropriatory action is taken by a foreign governing
authority in a commercial capacity, except to the extent that the action “could not have
been justified under the terms of any contractual arrangement.”
1. Article 4.03(a) Analysis
As regards Section 4.03(a), the record does not support the inference that the
“preponderant cause [of the expropriation] is unreasonable action attributable to the
Insured, including corrupt practices.” During negotiations with the Insured and INTESA
in 2002, PDVSA negotiators alleged that the prior President of PDVSA and the PDVSA
Board of Directors did not select the Insured pursuant to a transparent and open bidding
process. The Insured has provided evidence refuting this allegation, including documents
issued by Luis Giusti, who was President of PDVSA at the time of the Insured’s
selection, as well as an affidavit from former PDVSA Vice President Luis Pacheco.
Indeed, subsequent statements by President Chavez and the Venezuelan Minister of
Mines and Energy lend support to the view that the allegations in the Comptroller’s
report were fabricated in order to provide a pretext for the termination of the Services
Agreement and the JVA. Both President Chavez and Minister Ramirez confirmed an
explanation provided by PDVSA negotiator Luis Pacheco that the termination of the
Services Agreement and the JVA were motivated by alleged ties among the Insured,
INTESA and the CIA, not by alleged improprieties in PDVSA’s selection of the Insured
as a joint venture partner.
Furthermore, as discussed above at Section III.A.2.b.iii, the record does not
support the conclusion that INTESA engaged in sabotage, as alleged by President Chavez
and other GOV officials.
2. Article 4.03(b) and 10.03 Analysis
OPIC concludes that there is sufficient evidence of GOV involvement to conclude
that the expropriatory acts were attributable to the GOV under OPIC Contract Article
4.01. This conclusion is supported by President Chavez’s public acceptance of
21
responsibility for the termination of INTESA’s remote access capabilities, the barring of
INTESA employees from their workplaces, the harassment and intimidation of INTESA
employees, the seizure of INTESA assets and premises, and evidence of involvement by
National Guard troops. The direct evidence of a governmental plan to expropriate
INTESA, including through acts initially ordered by PDVSA President Ali Rodriguez,
renders the exclusion under Article 4.03(b) (as amended by Article 10.03) inapplicable.
Article 4.03(b), as amended by Article 10.03, provides certain limitations on the
types of actions that may be attributed to foreign governing authorities. Together,
Articles 4.03(b) and 10.03 state that:
No compensation for expropriation shall be payable if:
the actions of a supplier, creditor, lessor, shareholder, director, or manager of, or
purchaser from, the foreign enterprise… are attributable to the foreign governing
authority, whether by virtue of the foreign governing authority’s ownership
interest in, control over or other relationship with such supplier, creditor, etc., or
otherwise (such supplier, creditor, etc., hereinafter a ‘government-related entity’),
and the expropriatory act or series of acts involves action or inaction by such
government-related entity, unless, in the case of total expropriation satisfying the
requirements of §4.01 and subject to the exclusions of §4.03 and limitations of
§5.04, The Insured has demonstrated to OPIC’s satisfaction that such action or
inaction could not have been justified under the terms of any underlying
commercial arrangement…
The Insured has demonstrated to OPIC’s satisfaction that such action or inaction could
not have been justified under the terms of any underlying commercial arrangement.
Under the facts of the Claim, this provision applies to PDVSA, which was the
Insured’s joint venture partner, owning 40 percent of INTESA’s shares. PDVSA was
also INTESA’s primary customer, providing 95 percent of INTESA’s revenues, as well
as a supplier to INTESA of certain telephone and utility services necessary to INTESA’s
22
performance under the Services Agreement. Together, OPIC Contract Articles 4.03 and
10.03 indicate that the mere fact of the GOV’s ownership and control of PDVSA does not
render PDVSA’s actions attributable to the GOV. However, if the Insured demonstrates
to OPIC’s satisfaction that PDVSA’s actions could not be justified under the terms of any
underlying commercial arrangement, then these actions may be attributable to the GOV.
OPIC concludes that the December 11, 2002 termination may be attributed to the
GOV because this order “could not have been justified under the terms of any underlying
commercial arrangement” within the meaning of Article 10.03. As reflected in written
statements by both INTESA and PDVSA managers, the termination of remote access
could not have been commercially justified because it ran counter to commercial
arrangements negotiated by PDVSA and fundamentally undercut PDVSA’s ability to
function. Evidence that the order to terminate remote access actually harmed PDVSA’s
commercial interests supports a conclusion that the order to terminate remote access was
non-commercial in nature.
In late November 2002, PDVSA had negotiated a Contingency Plan with
INTESA that explicitly required INTESA to continue to maintain critical services to
PDVSA through use of remote access capabilities. Accordingly, Dr. Rodriguez’ sudden
repudiation of this key term of the Contingency Plan without consultation with either
PDVSA or INTESA IT managers elicited an alarmed response from these managers. The
most telling evidence of the non-commercial nature of Dr. Rodriguez’ order is the
opposition that it generated among PDVSA managers. For example, correspondence
from PDVSA IT Manager Carlos Martinez to PDVSA President Rodriguez underscores
the negative impact of Dr. Rodriguez’ directives on PDVSA’s own ability to function. In
an e-mail to PDVSA and INTESA employees dated December 12, 2002, Mr. Martinez
emphasized that remote access had been deactivated pursuant to Dr. Rodriguez’
instructions and stated his intention to reverse that decision in light of the “negative
impact on the business and INTESA’s capability of keeping the computing platform
working without this access.” He asked employees to provide examples of specific cases
that demonstrated the operational problems caused by the termination so that he could
23
present those examples to Dr. Rodriguez in an effort to reverse his December 11 order.17
In other e-mails, Mr. Martinez of PDVSA emphasized “the negative implications of this
measure as it will be of great impact on the operational continuity of all applications” and
the “negative impact on the business and INTESA's capability of keeping the computing
platform working without this access.” Similarly, PDVSA’s SAP Application Manager,
Marco Mogrovejo stated: “[T]he Remote Access Service (RAS) is a fundamental element
to guarantee the minimum level of service,” and “not having remote access has
deteriorated to a great extent the quality of the contingency service that had been
provided to date.”
Dr. Rodriguez’s order was absolute and irrevocable. Dr. Rodriguez insisted on an
absolute ban on all remote access codes used for the PDVSA system and rebuffed
PDVSA IT management and INTESA requests to permit remote access to a small group
of pre-approved INTESA employees. The correspondence on this topic reflects the
urgency with which both INTESA and PDVSA managers regarded this request. All
attempts to restore remote access were ultimately unsuccessful because Dr. Rodriguez
further ordered the disconnection of the 800 number phone lines that supported the RAS
system. Dr. Rodriguez’ refusal to permit any and all remote access – even for a limited
group of INTESA employees – seriously harmed PDVSA because it deprived PDVSA of
INTESA’s services. This decision caused significant harm to PDVSA and INTESA and
destroyed INTESA’s functional capacity. While the order to terminate remote access
cannot be justified under any commercial arrangement between INTESA and PDVSA, it
could be explained if the purpose were to destroy any and all commercial arrangements
between the two entities.
For the foregoing reasons, Dr. Rodriguez’ order to terminate remote access would
fall within the exception allowing compensation for acts by state-owned entities that are,
inter alia, purchasers, suppliers and/or shareholders, provided that such acts “could not
17 E-mail from Carlos Martinez Mavellan to PDVSA and INTESA IT employees (December 12, 2002, 9:51 a.m.).
24
have been justified under the terms of any underlying commercial arrangement” within
the meaning of Article 10.03.
3. Article 5.04 Analysis
Section 5.04 of the OPIC Contract identifies three limitations on compensation.
First, the Insured may not request compensation that exceeds the active amount of its
coverage on the date the expropriatory effect commenced. The Insured has met this
requirement. Second, the Insured’s compensation is limited if INTESA was insolvent on
the date the expropriatory effect commenced. INTESA was not insolvent on December
11, 2002, which is the date the expropriatory effect commenced. Finally, the Insured
may not receive more than 90 percent of its claimed compensation. Again, the Insured’s
application reflects this limitation.
C. The Insured has complied with its duties under the OPIC Contract.
As required under Articles IX and X of the OPIC Contract, the Insured has
complied with its duties and obligations under the OPIC Contract. The Insured’s duties
have been satisfied as follows:
• Ownership and Eligibility (§ 9.01(2), as amended by § 10.05): The Insured has at
all times remained the beneficial owner of the insured investment through SAIC
(Bermuda), Ltd. and the beneficial owner of more than 50% of the total interest in
INTESA. The Insured’s ownership interest in shares by class has varied over
time and the Insured has not always had at least 50% of each class of stock due.
However, the Insured has retained the degree of beneficial interest in INTESA
required by the OPIC Contract. In addition, the Insured has met the U.S.
citizenship provision of § 9.01(2)(a) (as amended). The Insured is a U.S.
corporation.
• Self-Insurance (§ 9.01(3)): The Insured continues to bear the risk of loss of at
least 10% of the book value of its investment in INTESA.
25
• Assignment (§ 9.01(4)): The Insured has not assigned its OPIC Contract, or any
of its rights.
• Premiums (§ 9.01(5)): The Insured has paid all OPIC insurance premiums in a
full and timely manner. At the time when the Venezuelan Government
expropriated the Insured’s investment (i.e., mid-December 2002 through January
2003), the Insured maintained coverage in the active amount of up to
US$15,000,000, effective through March 29, 2003. The Insured subsequently
renewed this level of coverage through September 29, 2003.
• Accounting Records (§ 9.01(6)): The record shows that the Insured has
maintained accounting records in the manner required by OPIC. As required, all
financial statements have been prepared in U.S. dollars in accordance with
generally accepted accounting principles in the United States, including principles
of currency conversion.
• Reports and Access to Information (§ 9.01(7)): The Insured has furnished all
information requested by OPIC. In particular, the Insured has submitted
responses to OPIC’s Self-Monitoring Questionnaire, which the Insured provided
annually.
• Compulsory Notice (§ 9.01(8)): The Insured has provided OPIC with notice of all
developments that could potentially give rise to a claim under the OPIC Contract.
In November 2002, the Insured informed OPIC in writing of a letter from General
Oswaldo Contreras invoking PDVSA’s right to take actions against INTESA “in
the national interest,” which raised the possibility of a governmental expropriation
of the Insured’s interest in INTESA. The Insured and OPIC engaged in telephone
consultations between December 2002 and May 2003.
26
• Preservation, Transfer and Continuing Cooperation (§ 9.01(9)): The record shows
that the Insured has complied with its obligation to take reasonable measures to
preserve its property. the Insured invested significant resources in negotiating a
renewal of the Services Agreement and thereafter negotiating a transfer of its
shares. Prior to and during the national strikes, even while working to ensure that
INTESA met PDVSA’s requirements, the Insured executives expressed concerns
to the PDVSA Presidency and other top management officials regarding
PDVSA’s failure to pay INTESA invoices and the actions taken by the Presidency
that deprived INTESA of its operational capacity. When the Venezuelan military
began seizing INTESA assets and blocking INTESA employees from their
workplaces, the Insured had INTESA obtain judicial inspections in an effort to
create a record of its remaining assets. PDVSA opted to proceed through court
actions rather than the JVA or Services Agreement dispute resolution procedures.
PDVSA repudiated contractual dispute resolution procedures by bringing judicial
actions, including lawsuits that sought to force INTESA to transfer assets to
PDVSA -- many of which had already been seized by the GOV and PDVSA.
Many of these lawsuits remain pending in Venezuela. The Insured has helped
fund and direct INTESA’s responses to legal actions by PDVSA that would harm
INTESA’s interests.
• Other Agreements (§ 9.01(10)): The Insured has not entered into any agreement
with any foreign governing authority with respect to compensation for any acts
within the scope of the Insured’s OPIC Contract.
• Modification of Project Agreements (§ 9.01(11), as amended by § 10.04): The
Insured has not agreed to materially modify any of the project agreements that fall
under the purview of the OPIC Contract.
• Worker Rights (§ 9.01(12), as amended by § 10.04): The Insured has not taken
any actions that prevented the employees of INTESA from exercising their right
27
of free association and their right to bargain collectively. The Insured has also not
violated any labor law identified under § 9.01(12) of the OPIC Contract.
• Intermediate Subsidiary (§ 10.07): The Insured has warranted that the SAIC
(Bermuda), Ltd. was established for the sole purpose of undertaking the project
and that it has remained so limited throughout the period of the OPIC Contract.
• Free Transfer of Interest (§ 10.10): No liens or encumbrances prevent the transfer
of the Insured’s interest in INTESA. INTESA’s shareholder information appears
in the company’s official shareholder registry, which properly reflects its current
shareholder ownership. In light of the expropriatory acts taken by the GOV, it is
possible that PDVSA shareholders will seek to block transfer of the Insured’s
shares. Attempts by PDVSA to frustrate the operation of Article 8.02 and 10.10
would not affect OPIC’s determination in this case.
• Spanish Language JVA (§ 10.11, as amended): The Insured attached to the Claim
a copy of the Spanish-language version of the JVA with PDVSA. Although the
Insured has not complied with this provision of the OPIC Contract, this factor is
not material and does not affect OPIC’s determination.
IV. CONCLUSION
For the foregoing reasons, OPIC concludes that the Claim is valid. The amount of
compensation for the Claim will be determined separately.
OVERSEAS PRIVATE INVESTMENT CORPORATION
By:_____________________________________ Peter Watson President and Chief Executive Officer July 12, 2004
top related